Robert Silverman participates in the IR Global Virtual Series – International Trade: Global and regional trade in the post pandemic

Foreword Co-Authored By Andrew Chilvers And Bob Brewer

Global Trade: Combating protectionism and the pandemic

The past 18 months were a huge shock to international trade as increasing protectionism and Covid-19 wrought havoc with all previous forecasts and economic roadmaps.

Many business analysts predicted that the double whammy of protectionism and pandemic would spell an end to globalised trade.

Indeed, if we roll back a few years many economists were already warning that international trade was tapering off even before President Trump, Brexit and the coronavirus. As older, more established economies converted to the new digital economy, less goods were being shifted around the world. This coincided with the rise of China as an economic superpower, the proliferation of international laws, regimes and treaties governing trade and the increasing interconnectedness of supply chains.

But this complex global trading pattern was also the architect of its own undoing, creating financial instability, a trade imbalance, climate change, a rise in cyberattacks and the spread of the pandemic through trade networks. These crises then reverberated across the globe, appearing in different jurisdictions and spreading across local borders.

The Trump administration’s moves to address the trade imbalance with other trading partners was a catalyst for the resulting rise in protectionism – overnight he was using tariffs as a tool. This was particularly the case with China, where supply chains were impacted as businesses had to work around the tariffs, causing supply chain diversification and huge issues around the rules of origin.

This imposition of tariffs has now forced US businesses to take on higher costs at exactly the wrong moment, ie during a global pandemic. This has also had a knock-on effect with other US trading partners such as Canada, Mexico and the EU, which are all re-evaluating their trading relations with China, particularly around the rules of origin to ensure products are not using mainly Chinese components.

What are the opportunities and challenges that face global and regional trade in your jurisdiction?

The top US trade challenge continues to be that there are high duty rates on many products from China and clients must do what they can to minimise duties.

In addition, US Customs continues to state that it plans to increase its enforcement efforts and we are definitely seeing greater concentration on whether products are made with forced labour. Importers need compliance programs to ensure they meet the US customs laws and that they can prove they exercised reasonable care and that their goods were not made with forced labour or North Korean labour.

What is the impact of non-preferential rules of origin in the post-pandemic trading environment in your jurisdiction?

This takes us to the opportunities: change the tariff classification to identify a tariff code that does not have a high duty rate or change the product to change the tariff code to achieve the same result; reduce dutiable value to reduce duties to be paid as most duties are a % of dutiable value and change the country of origin to have the goods produced in a different country to avoid the high duty rate.

In the US importers can structure products or transactions to achieve more favourable duty rates. Customs valuation is an especially viable area for us where we can lower dutiable value by stripping out non dutiable charges (e.g., international freight charges, US installation charges, or buying commissions) from the prices paid for goods or using the first sale rule of appraisement to reduce dutiable value. Under the first sale rule we can have duty paid based on the prices paid to the factory rather than the higher prices paid to a trading company.

Country of origin continues to be an area that is in flux based on recent US Customs rulings. In the past components or parts of goods that were substantially transformed into new articles of commerce with a new name, character, or identity in a second country were a product of the second country. Now, based on new rulings, US Customs also considers the country where the significant parts of the final products were produced. As an example, significant parts from China, added to parts from India, which are produced into a product in Thailand might be a product of China, thereby subjecting the goods to additional duties. In the past the same facts would likely have resulted in US Customs holding that the goods were products of Thailand. Customs rulings to confirm origin in cases like this are critical before undertaking such big changes in operations.

Predictions: what do you think global and regional trade integration will look like in your jurisdiction in five years?

Based on the past we can say that the future is difficult to predict. Under the Trump administration we saw that trade was used as a tool of international relations. Tariffs were imposed on more imported goods than any time in the past 50 years.

Under the current administration we see a softening of duty assessments on product from the EU, but no change in barriers for goods from China. In the future, if a better relationship with China can be established, these large duty rates will go away, but we have no way to know if a deal with China can be made. In the past the world was moving toward more free trade, but that movement has stopped, and the US is trying to incentivise the growth of certain US industries. We do not know if those efforts will include additional tariffs or trade barriers.